September 2025 – October 2025: EU/UK Regulatory Round-Up

1. FCA Consultation on Changes to the UK Short Selling Regime

On 28 October 2025, the Financial Conduct Authority (FCA) published consultation paper CP25/29,¹ proposing a new short selling regime to replace the European Union (EU)-derived UK Short Selling Regulation (UK SSR). The changes follow HM Treasury’s Short Selling Regulations 2025 (SSR 2025) and builds on its prior Call for Evidence published in 2022. Reflecting a more-targeted and risk-approach, the overarching aim is to streamline the existing regime through the creation of a more efficient, effective and coherent regulatory framework, ensuring greater alignment with UK market structure and priorities. To effectuate this, the FCA proposes to introduce a new Short Selling Sourcebook within the FCA Handbook, with final rules expected in Q2 2026.

The consultation is relevant to any firms engaged in short selling shares of companies admitted to trading on a UK trading venue, irrespective of whether they are based in the UK or outside the UK.

This article considers the key impacts for investment management firms.

Key Changes Proposed:

• Public Disclosure Reform: Position holders will still be required to report to the FCA net short positions (NSPs) in shares admitted to trading on a UK trading venue when they are at, above or subsequently fall below the reporting threshold (0.2% of issued share capital of in-scope issuer and each 0.1% increment). However, the FCA proposes to replace the current requirement for public disclosure of individual position holders equal to or above 0.5% of an in-scope company’s issued share capital, with an anonymised aggregated public disclosure comprising all outstanding NSPs above the 0.2% reporting threshold that would not name individual position holders—known as aggregated net short positions (ANSPs). This would reduce the reputational or portfolio risk for individual firms engaged in short selling as part of their investment strategy as such positions would not be attributable to them via the FCA’s public reports.
• Reporting Deadlines Extended: Position holders will be given more time to report NSPs notifications as the FCA proposes to extend the reporting deadline from 15:30 T+1 (UK time) to 23:59 (UK time) T+1.
• New Reportable Shares List (RSL): The FCA proposes to replace the current list of shares exempt from the UK SSR with the RSL. Only shares with a UK nexus (as determined by a list of factors, e.g. whether admitted to trading on a UK venue and liquid in the UK) will be included. This change is expected to reduce the number of shares in scope of the UK SSR and, by extension, the administrative burden on firms subject to reporting requirements.
• Covering Requirements Clarified: Under the UK SSR, persons who engage in short selling of shares admitted to trading on a UK trading venue are required to cover their transactions. This means the person must have in place covering arrangements designed to reduce the risk of settlement failure by e.g. borrowing or having in place so-called locate arrangements. The FCA proposes a new change that requires firms to keep records evidencing covering arrangements (e.g. agreements to borrow shares, contracts, confirmations and instructions, etc.) which must be held for at least five years.
• Group Reporting Guidance: New guidance will aid firms in avoiding double-counting of NSPs across group entities, ensuring more accurate and consistent reporting.

Implementation:

• Consultation closes: 16 December 2025
• Final rules expected: Q2 2026
• Implementation date: Likely late 2026, subject to FCA confirmation.

The FCA has proposed a two-phase implementation to give firms time to adapt to the new regime:

• Phase 1 will focus on ensuring the FCA’s systems are ready to support the calculation and publication of ANSPs, and the RSL, from day one of the regime going live on the main commencement date. This is critical for firms to understand which instruments fall within scope and how their positions will be aggregated and disclosed.
• Phase 2, scheduled to come into effect six months after Phase 1, will introduce updated FCA systems for the submission of position reports and notifications relating to the market maker exemption. This staggered approach is designed to reduce operational pressure and allow firms to prioritise system changes in line with regulatory sequencing.

To support transition planning, the FCA intends to publish a Policy Statement and final legal instrument approximately two months before the main commencement date. This will be accompanied by a live version of the RSL, enabling firms to test and align their reporting systems ahead of go-live.

What Firms Should Do Now:

While the FCA is not proposing a fundamental overhaul, the operational impact—particularly for compliance, trading desks and data teams—could be significant. Firms should begin preparing now to avoid disruption.

• Review internal short selling controls especially around NSP calculation, reporting workflows and data governance.
• Assess technology and compliance systems for compatibility with the proposed changes, especially the new RSL and extended reporting deadlines.
• Engage with the consultation if the changes materially impact your trading or reporting obligations.

2. FCA Consultation on the Application of the FCA Handbook for Regulated Cryptoasset Activities

The FCA’s consultation paper CP25/25 (published 17 September 2025)² marks an incremental step in the UK’s evolving regulatory framework for cryptoassets. Building on HM Treasury’s draft Statutory Instrument (SI) published on 29 April 2025—the Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025 (Draft SI)³ —the FCA’s consultation considers how the FCA Handbook rules should apply to firms that will be carrying out such cryptoasset regulated activities.

Financial Services and Markets Act 2000 (Regulated Activities and Miscellaneous Provisions) (Cryptoassets) Order 2025

To restate briefly, HM Treasury’s draft legislation seeks to:

• Define “qualifying cryptoassets”⁴ and “qualifying stablecoin”⁵ and classify them as specified investments for the purposes of the Financial Services and Markets Act 2000 (FSMA).
• Introduce certain activities relating to these assets as regulated activities requiring authorisation from the FCA⁶, namely for:
• Issuance of UK “qualifying stablecoins”.
• In respect of “qualifying cryptoassets”, operating a trading platform, dealing, arranging transactions, custody arrangements and staking, known as “regulated cryptoasset activity”.

The Draft SI does not propose to bring discretionary management or investment advice in respect of cryptoassets into the UK regulatory perimeter.

Territorial scope:

• Under the terms of the Draft SI, the issuance of qualifying stablecoins will be caught by UK rules if “qualifying stablecoins” are issued by a UK issuer.
• The Draft SI proposes to make changes to section 418 of FSMA (which defines certain cases when a regulated activity will be deemed to be carried on in the UK, even when it would not otherwise do so), including that:
• If a person is carrying on a “regulated cryptoasset activity” that involves dealing or arranging activities and, in doing so, is involved directly or indirectly in the sale or subscription of qualifying cryptoassets to or by a UK consumer⁷, such activities would be deemed as being carried on by the person in the UK and in scope of UK rules.
• Such “regulated cryptoasset activity” involving dealing or arranging will not be deemed to take place in the UK (and not in scope of UK rules) if there is a UK-authorised intermediary between the person and the consumer. Similar provisions apply in relation to safeguard and staking activities.

CP 25/25

CP 25/25 examines the application of FCA’s Handbook to “regulated cryptoasset activity” which the Draft SI will bring about.

Broadly speaking, it proposes that cryptoasset firms be held to the same standards as conventional firms when carrying out regulated activities, albeit with certain nuances to cater for the unique nature of the asset class.

Scope and regulatory approach:

As stated above, the FCA is not proposing to differentiate between types of cryptoassets at this stage. Instead, it is applying the core principle of “same risk, same regulatory outcome”. This also means that crypto firms will be subject to the same core regulatory standards as applied to existing authorised firms.

Below is a discussion of salient points.

Senior Management Arrangements, System and Controls:

CP 25/25 aims to apply the senior management arrangements, system and controls (SYSC)sourcebook to regulate cryptofirms’ governance, systems, controls, whistleblowing and conflicts of interest, in the same manner that it does to other FSMA-authorised firms.

Whilst the FCA proposes classifying most crypto firms as “other firms” under SYSC, thereby avoiding the heavier obligations of “common platform firms”, robust systems, controls and oversight will be required.

The FCA proposes extending its operational resilience framework under SYSC 15A to cover all cryptoasset firms, including those that would not traditionally fall within its scope under existing requirements for FSMA-authorised firms. Firms must, for example, identify their important business services; establish impact tolerances for their important business services; carry out scenario testing; and maintain an internal and external communication strategy to act quickly and effectively to reduce the anticipated harm caused by operational disruptions.

Financial crime remains a priority, with crypto firms expected to align with FCG and FCTR guidance on financial crime controls, including governance over AML systems, transaction monitoring and fraud risk management.

The FCA’s approach is to tailor existing rules to cryptofirms without lowering the standards that they are held to.

Senior Managers & Certification Regime:

CP 25/25 looks to apply the current Senior Managers & Certification Regime (SM&CR) to cryptoasset firms. Accordingly, the tiers (Limited, Core or Enhanced) within the SM&CR regime will apply to ensure a proportionate approach.

Financial Crime:

CP25/25 suggests the application of the existing financial crime framework to cryptoasset firms, requiring compliance with SYSC 6 and alignment with the FCA’s Financial Crime Guide (FCG) and Financial Crime Thematic Reviews (FCTR). Firms must implement proportionate anti-money laundering (AML) and counter-terrorist financing measures, including governance oversight, transaction monitoring, and robust customer due diligence.

Applying the Consumer Duty and access to the Financial Ombudsman Service to regulated cryptoasset activities:

The FCA has not yet consulted on applying the Consumer Duty to cryptoassets, which remains an area of uncertainty. CP25/25 explores two courses of actions:

• Application of the Duty: Proposed benefits being high standards for retail customers, built-in flexibility for sector-specific guidance and a baseline of consumer protections which ensures that due attention is paid to the needs and outcomes of customers at all times.
• Bespoke rules, no Duty: Rules tailored for the cryptosector may be more appropriate to accommodate the uniqueness of the crypto market (in keeping with other aspects of the Handbook). Certain one-size-fits-all requirements may not be suitable, with difficulties relating to product governance (no clear issuer and difficulties complying with requirements as to the distribution of products), fair value, and avoiding causing foreseeable harm.

Similarly, the FCA has signalled that it will consult as to whether customers of cryptoasset firms should be able to refer complaints to the Financial Ombudsman Service, specifically when the cryptoasset firm has been unable to resolve the complaint itself, and if the FCA’s complaint handling rules should apply to regulated cryptoasset activities.

Product Governance:

The FCA is deciding whether or not to apply existing product governance (PROD)provisions, in part because of the challenges it has identified, namely (i) how to determine who regulatory obligations should apply to (given cryptoassets are created and distributed by decentralised networks or anonymous issuers); and (ii) how to apply rules intended solely for retail markets, when certain cryptoassets sold initially to non-retail customers are then sold onto a retail customer.

Key Dates:

• The deadline has passed for responses to discussion chapters (Chapters 6–7), covering the potential application of the Consumer Duty, product governance, and access to the Financial Ombudsman Service.
• 12 November 2025 – Deadline for responses to consultation chapters (Chapters 1–5), covering the application of core Handbook rules and authorisation requirements.
• 2026 (expected) – Final rules and Policy Statement to be published, following HM Treasury’s finalisation of the regulated activities order (RAO).
• Implementation date – To be confirmed, but firms should assume a 2026 go-live and begin preparations now.
• It is expected Policy Statements containing the final rules will be published in 2026, following HM Treasury’s finalisation of the RAO, but firms should begin gap analyses and governance planning now, given the scale of compliance uplift required.

What firms should do now:

• Conduct a legal review and gap analysis to assess whether existing practices, permissions and controls to determine which areas would require updating to reflect the scope of new rules.
• Review governance and operational resilience frameworks in light of SYSC and SM&CR requirements.
• Plan for direct authorisation if currently undertaking such activities.

3. Other noteworthy developments:

• The European Securities and Markets Authority (ESMA) published its final report on open-ended loan originating alternative investment fund (AIFs) under the Alternative Investment Fund Managers Directive (AIFMD).
• The Chancellor of the Exchequer launched a “Scale-up Unit” to 'supercharge' growth of innovative financial services firms.
• FCA published a consultation paper on Consequential Handbook changes following the proposals in CP25/17.
• FCA published guidance on the Public Offers and Admissions to Trading Regulations regime.
• FCA published a review of consolidation in the financial advice and wealth management sector.
• There are early-stage indications that the FCA will consult on a dedicated, lighter regulatory regime to support smaller and start-up managers, in a bid to reduce barriers to entry and encourage innovation.

^{1 Consultation Paper CP25/29: Changes to the UK Short Selling Regime: https://www.fca.org.uk/publication/consultation/cp25-29.pdf.}

^{2 Consultation Paper CP25/25: Application of FCA Handbook for Regulated Cryptoasset Activities: https://www.fca.org.uk/publications/consultation-papers/cp25-25-application-handbook-regulated-cryptoasset-activities.}

^{3 HM Treasury: Regulatory Regime for Cryptoassets (Regulated Activities) – Draft SI and Policy Note: https://www.gov.uk/government/publications/regulatory-regime-for-cryptoassets-regulated-activities-draft-si-and-policy-note.}  

^{4 Under section 88F(1) and (2) of the Draft SI, the term “qualifying cryptoassets” is defined as a cryptoasset which is (i) fungible and (ii) transferable, meaning it (a) confers transferable rights; or (b) a communication made in relation to the cryptoasset describes it as being transferable or conferring transferable rights; and (iii) it is not excluded by virtue of section 88F(4) of the Draft SI which includes various exclusions from the term “qualifying cryptoassets”, including assets already covered by other UK regimes, including as electronic money and tokenized securities. Accordingly, “qualifying cryptoassets” is defined in a broad way that would allow flexibility to capture tokens even where there is technological development in the construction or design of cryptoassets.}

^{5 Under section 88F(3) and section 88G(1), a “qualifying stablecoin” is defined as a sub-set of “qualifying cryptoassets” that: (i) references a fiat currency; and (ii) seeks or purports to maintain a stable value in relation to that referenced fiat currency issued by the issuer holding or arranging for the holding of: (a) fiat currency; or (b) fiat currency and other assets, irrespective of whether the holding of a fiat currency other than the one referred to in sub-paragraph (a) or other asset contributes to the maintenance of that stable value. There are also technical carve outs from the definition of a “qualifying stablecoin”, including for tokenised deposits (see section 88G(2)). Further, there are consequential amendments to other statutory instruments to ensure that “qualifying stablecoin” backing assets are not considered either an alternative investment fund or collective investment scheme (Part 5 of the Draft SI).}

^{6 For firms already authorised by the FCA, a variation of permission would be required to engage in the new regulated activities in relation to “qualifying stablecoin” and “qualifying cryptoassets”.}

^{7 A “consumer” is defined as “an individual who is acting for purposes outside those of any trade, business or profession carried on by that individual” (section 4(3) of the Draft SI).}